When one is looking at recent health and safety disasters, it’s best to start with the root of the problem: profit. Of course, even outfits that call themselves non-profit have to take in at least as much as they spend. Profit becomes a problem when, especially in the short term, it becomes the only consideration.
Concerns over short term profit are why, when firms consider the possibility of measures to increase health and safety, they often face internal opposition. Frequently opponents point to negative impact on that year’s bottom line. The factory-sized air filters are not cheap. Likewise, building in the safest ways means increased expenses. None of this looks good in the firm’s quarterly or yearly report.
Profit – Now
Why this emphasis on yearly profits? The occasional short sellers aside, most investors want to put their money in companies that currently make a profit. Even when a privately owned business, from a farm to a car dealership, ask for bank loans (which they often do) yearly profits are bound to influence the bank’s decision.
The world over, going the cheapest route in health and safety has its risks, especially in the construction industry. A few years back, Grenfell Tower apartments in London went up in flames because its cheap, external cladding was not fireproof. Death and homelessness followed.
This past year, the cheap bamboo scaffolding for a repair project on a Honk Kong apartment block caught fire and spread rapidly with the same result. Perhaps it is no surprise that in a technologically advanced (and dependent) U.S., seeking profit over everything else produces its share of disasters. About ten years ago, to increase profits, Boeing delivered the first version of 737 Max to the airlines before all the safety provisions were in place. Two airliners crashed killing all on board.
Who Suffers Financially and For How Long?
Ironically, by taking the cheapest route, in the end profit gets sacrificed. In the wake of these disasters, the legal bills mount and the court mandated payouts are seldom small. However, it is important to keep in mind that, at least in the U.S. and Great Britain, those payments take place many years after the disaster. The Boeing 737 Max crashes happened more than five years ago and there are still negotiations over the compensation. In the business world, five years is a long time.
Short Term Attractions
In most cases, after five years, the people who made those often fatal decisions are long gone. They are unlikely to have left poor. When Boeing first announced the airlines the contracts to buy the 737 Max, their stock price went up. The odds are the managers of the day profited by selling at least some of their company stock. In addition, the odds are also that, even if their part in the disaster forced managers from the firm, they left with a so-called golden handshake. Changing such a highly profitable system won’t be easy.
Challenging Change
The cliché about journeys and many steps fits here. A good first step would be to switch the perspective from short to long term. The challenge of doing so begins with changing cultural norms. In the U.S. patience does not rank very high on the scale of values. It is in particularly short supply when it comes acquiring anything, but especially money. Get rich quick could be the national motto. So how to overcome the emphasis on short term profit? Most likely by emphasizing the likelihood of greater profit coming from the long term. Energy, both production and consumption, looks like a promising target for change, but it’s complicated.
The Energy Business
To state the obvious, most modern business depends on energy. Much to the discomfort of a variety of people, the fossil fuels that now provide most of that energy are becoming increasingly expensive to both produce and use. Each year ecologically sound methods produce greater and greater short term profits. But in the U.S. so far that is not yet enough. The economics has collided with a major aspect of the culture.
Energy and Power
These days doing away with fossil fuel dependence in the U.S. looks a political problem. A president and a political party, whose names no need to mention, have made the use of fossil fuels their policy. In fact the cultural mind set drives the politics. The development of coal and oil played a major role in making the U.S. a world power. For many years U.S. firms dominated those markets. To many voters, abandoning them feels like putting the nation on a downhill slide.
Looking Inside
Changing the internal operating rules of many businesses is also a major part of the challenge. As mentioned earlier, company stock has become a major part of managerial compensation. Tesla’s trillion-dollar deal with Elon Musk is a good example. Most of it is in company stock.
Musk aside, managers are almost always looking for ways to move up in managerial ranks. That attitude creates an atmosphere in which finding short term ways to drive up the stock price makes sense. The managers get a double benefit. When the value goes up, they sell and lock in gains. And, because of those increased yearly profits, they are in a better position move up the managerial ladder, either in their current firm or elsewhere.
Beginnings
Despite all the difficulties, efforts at change have already begun. Stockholders have elected board members to major corporations who care about health and safety. These boards determine the managers’ terms of compensation. Safety and health-conscious boards of directors can tie managerial profits to looking after internal and external health and safety. Increasing the time managers must hold company stock before they can sell it is one way to do it. This change has its attractions. In the long term the firm’s reputation is likely to rise and with it, profits. And profit is what it’s all about.
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